The New Medicare Drug Negotiation Program Explained
The Medicare Drug Price Negotiation Program represents a significant policy shift in American healthcare. Established under the Inflation Reduction Act, this program empowers the Centers for Medicare and Medicaid Services (CMS) to directly negotiate prices for high-cost brand-name medications in both Medicare Part B and Part D programs. The initiative aims to make essential medications more affordable for Medicare beneficiaries while reducing government spending on prescription drugs.
Beginning January 1, the program will impact the top 10 highest-expenditure drugs in Medicare, with plans to expand to 15 additional medications by 2027, including popular treatments like Ozempic. While the program’s primary goal is enhancing medication access and affordability for seniors, research suggests it may create serious unintended consequences for independent pharmacies across America.
Independent Pharmacies Face Significant Financial Risk
A comprehensive analysis conducted by the National Community Pharmacists Association (NCPA) in collaboration with 3 Axis Advisors has uncovered alarming financial risks for independent pharmacies under the current implementation plan. At the recent American Associated Pharmacies (AAP) Annual Conference in Austin, Texas, NCPA CEO Douglas Hoey, RPh, MBA, shared critical insights about these findings.
The study reveals a troubling disconnect between what pharmacies will pay to acquire these medications and what they’ll receive in reimbursement. Under the new program, patients will pay the negotiated “maximum fair price” (MFP), which could be substantially lower than the wholesale acquisition cost (WAC) that pharmacies must pay to stock these medications.
“For example, the WAC on the drug might be close to $600 and the negotiated price is $200,” Hoey explained, noting these figures aren’t far from actual projections. “The patient pays the $200 negotiated price, which is called the MFP, or maximum fair price.”
Cash Flow Crisis and Delayed Payments
The NCPA-commissioned study identified multiple financial challenges facing independent pharmacies under the current program structure:
Delayed Payment Timeline: The research found that pharmacies will receive payments 7-10 days later than currently required under existing prompt pay legislation, creating significant cash flow problems.
Monthly Cash Flow Strain: The payment delays could result in approximately $11,000 in monthly cash flow strain per pharmacy.
Annual Financial Impact: This translates to around $40,000 in annual cash flow issues for these small businesses—a potentially devastating blow to independent pharmacies operating on thin margins.
PBM Reimbursement Concerns Create Additional Risk
Beyond delayed payments, the program creates uncertainty around pharmacy benefit manager (PBM) reimbursement rates. As Hoey explains, “The way CMS has done this is they haven’t required the PBM to pay MFP. Our concern is that they’re going to pay less than MFP.”
This creates a scenario where patients pay the negotiated price, but pharmacies might receive even less from PBMs handling the transactions. Simultaneously, CMS hasn’t established requirements for what manufacturers must charge pharmacies, potentially squeezing independents from both directions.
Potential Medication Access Crisis for Medicare Patients
The financial pressures could force independent pharmacies to make difficult decisions about stocking these medications. “Our surveys of members have said, ‘Look, if I’m getting paid below my cost on these drugs, I’m not going to dispense the drug,'” Hoey revealed.
This potential access crisis is particularly concerning given the market share of independent pharmacies in medication distribution. “Our independent pharmacies dispense 34% of these top 10 drugs, so a third of all these drugs are going through independents,” Hoey noted. “If the independents say they can’t afford to dispense these, that’s a lot of Medicare patients who are going to have to scramble to be able to find these medications.”
Simple Solutions Proposed by Industry Experts
The NCPA has proposed three straightforward solutions that would address these concerns without undermining the program’s goals:
- Require manufacturers to sell to pharmacies at WAC (wholesale acquisition cost)
- Mandate PBMs pay pharmacies at MFP (maximum fair price)
- Enforce prompt payment rules consistent with existing legislation
“Three pretty simple things. Pay us at WAC. Pay us at the negotiated price,” Hoey summarized. “Pharmacies, I think, for the most part, would be satisfied. We’re not going to be jubilant, but we’d be satisfied.”
CMS Response and Future Outlook
According to Hoey, CMS has taken a hands-off approach, suggesting that “the marketplace will work it out.” The NCPA continues advocating with CMS, the administration, and members of Congress, sharing research highlighting these potential problems.
“We’ll see if the marketplace figures this out. I hope it does. I hope manufacturers pay at WAC, and PBMs pay at MFP. If they do, things will be okay,” Hoey concluded. “If they don’t, it’s a dumpster fire.”
As January 1 approaches, independent pharmacies, healthcare providers, and Medicare beneficiaries await clarity on how this program will ultimately impact medication access and the financial sustainability of community pharmacies across America.
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